1981 PLP (Trib (PTD)

MUHAMMAD MAZHAR ALI (PRESIDENT).‑This Miscellaneous application, under section 35 of the Income‑tax Act, 1922 read with section 151 of the Income‑tax Ordinance, 1979 has been presented on behalf of the assessee-- appellant, stating that while arguing appeal for charge year 1975‑76, the counsel for the appellant had made elaborate submission before the Bench in regard to ground No. 3 regarding maintenance of addition on account of entertainment duty and welfare case. We have consulted our notes relevant to date of hearing of this appeal, and we find that the grievance of the applicant is well‑founded. The learned counsel for the appellant had in fact pressed that ground before us and that it has escaped adjudica tion in our order dated 2‑6‑1979 passed in I. T. A. No. 965/KB of 1978‑

79. We shall take up that issue and proceed to decide it.

2. The relevant facts pertaining to this issue are these. While examining the assessee's books of account the Income‑tax Officer found that in the liabilities side of the Balance‑Sheet an amount of Rs. 3,86,354 had been shown as Provincial Government's entertainment duty this very amount in the Return of income was declared as income claimed to be exempt". The Income‑tax Officer observed that this amount was actually surplus of excise duty which was income liable to tax and the assessee had himself offered such surpluses for tax in the preceding years. He, therefore, issued notices under section 23(3) calling upon the assessee to clarify the position and also at the same time disclosing his mind to charge it to tax, unless some new evidence to prove that it was exempt was adduced before him. The assessee's stand before him was that neither the principles of res judicata nor that of estoppel was applicable in the Income‑tax proceedings and that the mistaken view adopted in the past could not be made the basis for treating the amount in question to be an income. The position, according to the assessee, was to be examined in accordance with law. The Income‑tax Officer made an observation that the assessee, while carrying on the business of film exhibition, collected excise duty together with exhibition charges and out of the amount so collected, a fixed amount was paid as entertainment duty. The surplus was, in his view income as it was gained during the normal trading activity of the assessee. Consequently, he added the entire surplus of Rs. 3,86,354 to the taxable income. The assessee assailed it by filing as appeal before the learned Appellate Assistant Commissioner A‑Range, Karachi. The learned Appellate Assistant Commissioner declined to interfere with the order of assessment in this behalf with these observations:‑ "The point was discussed with the learned counsel and he could not rebut the observations of the Assessing Officer. Since the amount collected by the appellant has not been disbursed and a surplus is being shown in the account which is nothing but income of the appellant and has rightly been taxed by the Income‑tax Officer. No interference is called for."

3. It was submitted by Mr. Iqbal Naeem Pasha, the learned counsel for the appellant that entertainment duty was levied under the West Pakistan Entertainment Duty Act, 1958. It was payable on admission of a person going to witness a show in the cinema house and not on the "proprietor of the entertainment", who was only a collecting agent in respect thereof on behalf of the Provincial Government. The appellant's role according to the counsel, was that of a collecting agent only in so much so that the entire amount of entertainment duty collected by him was to be paid to Provincial Government. These receipts were not of the nature of trading receipts and hence could not be treated as income in the hands of the appellant, by any subsequent process of flux of time, because quality and nature of a receipt for income‑tax purposes was fixedo nee and for all when the same was received. He further submitted that in the year, 1970, the Cantonment Board issued notices to owners of all cinema houses restraining them from making payment of entertainment duty to the Provincial Government, as it had no jurisdiction to recover the same. The amount of entertainment duty, according to the Cantonment Board, was to be paid to them. It was, the counsel so contended, pursuant to said notice that the appellant, like other cinema owners, stopped payment of entertainment duty to the Provincial Government after 1970. The amount in question, viz. Rs. 3,86,354.37 was lying in the accounts of the assessee as a liability and it was accordingly disclosed in the balance‑sheet. The counsel further contended that it was under misapprehension and misunderstanding of the legal position that the assessee offered the amount collected towards entertainment duty, in the years 1970‑71 to 1974‑75, as income for Income‑tax purposes. He also drew our attention to the fact that in the meanwhile the Provincial Government issued notice demanding the payment of the said sums. Certain writ petitions were therefore filed by the Cinema‑house owners, including the appellant, against the Director/Collector, Excise and Taxation and another as they had threatened to adopt coercive measures for recovery of the respective amounts of entertainment duty collected‑ in the aforesaid years. These writ petitions ware decided by the High Court by a consolidated judgment dated '7‑6‑1975. It is reported as Messrs Nishat Talkies and another v. The Director collector, Excise and Taxation, and another (P L D 1976 Kar. 712). The High Court held that the Central Government had never granted requisite sanction under section 60 to the Cantonment Boards to impose entertainment duty on cinema house located within their 'areas. The action of the Cantonment Boards in imposing and collecting entertainment duty from such cinema house was, therefore, held to be without lawful authority. At page 720 of the report it is held as under:‑ "It has already been noticed that the incident of entertainment‑duty is in respect of the payment for admission to an entertainment, and not on the proprietor of the entertainment, who is, however made liable to the recovery of entertainment duty in respect of the payment of entertainment to which the person concerned is admitted. In other words, the incident of duty imposed by the Act being on the payment for admission to entertainment, therefore, falls on the person admitted to entertainment which is subject to entertainment duty." At page 722 of the report their Lordships further held: "Since tax on entertainment, as noticed earlier is a separate field of law making specifically reserved for the Provincial Legislature the competence of the Provincial Legislature and the law so made would apply to all parts of the Province, unless they are sought to be excluded has been specifically exempted under the law or under any Constitu tional provision. It has already been held by their Lordships of the Supreme Court that a Cantonment Area falls within the territorial limits of a Province in which it is situated. In the circumstances, the competence of the Provincial Legislature to make laws on the subject of entertainments, even if the entertainments are held at a place within Cantonment limits is not open to any exception." The counsel also sought to support his contention by some other reported decision such as 22 Tax. Cases 51, (1969) 72 I T R 351, 116 I T R 60 (S C) and concluded his arguments by stating that it was a liability of the appellants to pay the said sum to the Provincial Government and, as such, it could not, by any principle of accountancy, be treated as income of the appellant chargeable to tax. In his submission, it is a liability and should have been treated by the Assessing Officer as such.

4. The learned Departmental Representative on the other hand, supported the impugned orders on the same. grounds which have been given by the officers below in the impugned orders. He particularly placed strong reliance on the following observations made by the Income‑tax Officer in the impugned assessment order:

"This amount of Rs. 3,86,354 which has been claimed as a liability of Provincial Government in the Balance Sheet has been declared in the Return as `Income claimed to be exempt'. Thus the same receipts have been claimed as liability as well as income exempt from tax. This amount is actually surplus of excise duty which is income liable to tax and the assessee himself offered such surplus for tax in the preceding year."

5. In the presence of above‑cited decision of the High Court of Sin in the constitutional petitions filed by the appellant as well as some other owners of cinema houses, there in fact, remains of the facts of this case little to be resolved. A perusal of the assessment order clearly shows that the assessee did not, unlike the preceding year, offer for tax way trading receipts under the head `entertainment duty surplus'. Admittedly the amount of Rs. 3,86,351 was explicitly recorded on the liability side of the balance sheet as Provincial Government Entertainment Duty. Despite havin shown it as a liability in the balance‑sheet, the assessee, as per assessment order, had declared it in the return as "income claimed to be exempt". It would, however, not make any difference inasmuch as, rightly pleaded by the counsel for the appellant, the quality and nature of a receipt for Income‑tax purpose fixed once and for all when the same is received. From the facts narrated before us as well as eiaborately stated in the judgment of the Sind High Court, referred to above, we have not the least hesitation in holding that the amount in question was not in the nature of the trading receipts in the hands of the appellant above‑named. The appellant was under a legal obligation to collect entertainment duty from cinema goers for witnessing a show and pass it on to the Provincial Government. The amount of the entertainment duty collected by the appellant but not paid to the Provincial Government therefore, in our opinion, at no point of time ceased to be a liability, or alternatively, did not any time become a trading profits or a trading receipts of the firm.

6. In the result, the appeal on this issue succeeds and is allowed accordingly. This order shall be read alongwith our order dated 2‑6‑1979 passed in I. T. A. No. 965/KB of 1978‑79, which stands rectified to this extent. Application allowed.